Franchising: All Change?

Widely reported problems with the UK East Coast train franchise have prompted speculation on the viability of the current form of franchise agreement and what a new franchise model might look like. This article provides an overview of the evolution of the franchise proposition since privatization in order to examine the limitations of the current franchise model. The original franchise agreement in the mid 1990s was based around a business opportunity model, was not unduly prescriptive and allowed the private sector some flexibility and room for innovation. Franchise length varied, with some as long as 15 years. Then the pendulum swung in the opposite direction. The Strategic Rail Authority (SRA) emerged with a new franchise model designed to give the SRA more control over the taxpayer's investment. The new agreement was tightly specified and the private sector operator was expected to deliver the pre-set service specification. Revenue support arrangements were introduced to insulate franchises from economic shocks. Revenue share arrangements were also introduced. Documentation was standardized and franchise duration was set at between seven and 10 years. This model has continued today under the Department for Transport (DfT). A number of indicators suggest that this model will need to change. Money is tight and the DfT is likely to face a shortfall in its return from the industry. There also is growing frustration with the current model. Some believe it has stifled innovation and creativity, while others struggle with the relatively short duration. A revised model might incorporate longer terms, an easing of the DfT's level of control, and an overhaul of existing revenue support and share arrangements. Since different franchises clearly have different risk, the relative inflexibility of the present approach may need to be reviewed, perhaps with a different model for different types of franchise.

Language

  • English

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  • Accession Number: 01142399
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Oct 25 2009 6:22PM